Whether you’re shopping for your first car or need to replace your broken-down vehicle, you may need a car urgently. But what if you don’t have a stellar credit score or never borrowed money before? In times when a regular auto loan from a credit union or bank doesn’t work for you, you still have an option with buy here pay here auto lots. In-house auto financing lets you bypass financial institutions so that you can get your loan directly from the car lot that sells you your vehicle.
Read on to learn how in-house auto financing works as well as the pros and cons of using this option.
What Is In-House Auto Financing?
Buy here pay here dealerships offer in-house auto financing programs that cater to people who don’t have good credit or who have no credit history at all. Traditional auto financing happens through banks that offer loans as a middleman. With in-house auto financing, though, the dealer holds the lending contract and sets its own application requirements.
You might consider using in-house auto financing if you applied for an auto loan from a bank and got denied. If you’re buying your first car and never took out any credit before, this could be an alternative to using a co-signer with a traditional auto loan. This auto financing option is also popular with buyers who have filed bankruptcy.
When you use an in-house financing option, you typically choose from a selection of used cars rather than new vehicles. The models may be several years old, but you can still find quality cars that work reliably.
This type of financing usually has more flexible payment options than regular car loans. While a bank might require monthly payments, a buy here pay here car lot may allow you to make weekly or bi-weekly payments. This can make it easier to budget for your payments.
How Do You Qualify for In-House Financing?
Each dealer will set its own in-house financing qualifications, but you’ll usually see a few common requirements.
First, your dealer most likely won’t run your credit. So, you probably won’t have to worry about having a poor credit score or missed payments in your credit history. In the rare case that your dealer does consider your credit profile, a bad history likely won’t be a dealbreaker like it would be for a bank.
Second, your dealer will have income requirements you need to meet. For example, you might need to show you earn at least a set amount, such as $1,500 a month. However, your income can be from any source and isn’t limited to regular W-2 income from a job.
Third, you’ll need to meet some basic requirements for residency and age. Your dealer will likely require that you’re a legal U.S. resident and that you’re at least 18 years old. Some states may have higher age requirements for in-house financing.
Lastly, you’ll need to be able to make the sufficient down payment that your dealer requires. For example, the dealer might have a maximum in-house financing loan amount, and you’d need a down payment to make up for the difference.
What Are the Advantages of In-House Financing?
The biggest benefit of these no credit check car loans is that you can still get car financing even if you have a poor credit history. A traditional bank would want to see that you have both a high credit score and regular income. But you’ll simply need to meet income requirements and meet any residency requirement to get in-house auto financing.
Depending on the dealer you use, no credit check auto loans can sometimes also help you build your credit. It’s true that many of these dealers don’t report your loan to the credit bureaus. However, some will, and you can shop around to find one that does if building your credit is important to you.
If you need a new car really fast, then the speediness of the in-house financing process will also give you an advantage. You can simply visit one of any buy here pay here car lots, learn about your financing options, and then drive off in your new car. You can even begin the application process online so that you can find the right dealer to visit.
Lastly, you get access to cheaper vehicles when you use buy here pay here dealerships. These vehicles usually come with a cheaper price since they’re used, but you can find newer models that are still in great shape.
What Are the Downsides of In-House Financing?
You can expect to pay a higher interest rate if you use in-house auto financing. After all, dealers take on bigger risks when they don’t check your credit history. This can mean an interest rate of up to 30 percent, much higher than the 4 or 5 percent interest rate you can get with regular loans.
If you want a brand new car, you might find that in-house financing won’t work for you. Dealers are willing to sell used vehicles for a lower price and offer this flexible financing option for them. You’ll need to consider other routes like a regular bank auto loan if you need the latest model in mint condition.
Using in-house financing can also have a negative or neutral impact on your credit. First, dealers often don’t report payments to credit bureaus, so you have no guarantee making timely payments will improve your credit history. At the same time, if you miss a payment or pay late, expect to see that negative impact on your credit report or even have your car repossessed.
You’ll usually also have to put a large chunk of cash down to qualify for this financing option. If you’re short on cash already, you may not have the minimum down payment amount needed to get your car.
Consider Whether This Option Is Right for You
When you need your car right now, in-house auto financing can make it easier for you to get a used car during a single visit.
As long as you can make the down payment and earn enough income, it can be a good option for you. If you can find a dealer who reports your payments, you may even see some good progress in building your credit again.
When making your decision, though, also consider the downsides. After all, you’ll have fewer vehicles to choose from. You will pay more in interest charges and your down payment.
Be sure to check out our other posts for auto news and tips.